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Zillow stock tumbles on SEC disclosures

October 2, 2012: 1:51 PM ET

Click the chart to track Zillow's stock.

Zillow's stock fell sharply Tuesday following the disclosure of previous correspondence between the company and the Securities and Exchange Commission regarding questions about the company's sales.

Shares of Zillow (Z), the real estate website, dropped as much as 10.2% in early trading, the biggest one-day decline since November, before trimming some of the losses. By the afternoon, Zillow was down about 4%.

The stock first began to fall after some written exchanges from August between the SEC and Zillow CEO Spencer Rascoff became available on the SEC's web site Tuesday. The correspondence was related to how Zillow reports revenue following its first annual 10-K filing. Zillow made its public debut in July 2011.

For example, the SEC asked why Zillow didn't discuss the increase in the average price paid for its Premier Agent subscriptions. In a response, Zillow said it would revise its future quarterly and annual filings to include the amount of the average monthly Premier Agent revenue per Premier Agent subscriber.

Related: This housing pickup won't drive much economic growth

While correspondence between the SEC and a company can sometimes raise concerns about nefarious accounting practices, analysts say that the conversation between the SEC and Zillow is not worrisome.

"It seems that people are concerned about the inquiry, but sometimes the SEC and companies go back and forth, particularly with new issues like Zillow," said Ron Josey, analyst at ThinkEquity. "The SEC was just doing its job, and now the matter has been resolved."

Josey, who has a Buy rating on the stock and a price target of $44 per share, remains bullish on Zillow, and says the weakness in the stock creates a buying opportunity. The stock was trading below $39 Tuesday afternoon.

In an e-mailed statement, Zillow also noted that its correspondence with the SEC is a "common occurrence for public companies," as the SEC has a statutory requirement to review issuers' 10-K filings no less than every three years.

"This letter was in response to an early 2012 10-K filing submitted by Zillow, and we have since responded to the SEC's satisfaction," the company said. "The comment letters resulting from such reviews are made public 45 days after they have been resolved."

Shares of Zillow rival Trulia (TRLA), which went public last month, were down slightly Tuesday. Trulia runs a co-branded website under a partnership with CNNMoney.

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